Reports of the death of New Labour are, as Mark Twain might put it, greatly exaggerated. Most of the themes the party pioneered in its long march away from traditional leftism remain intact.

We live in a far more interdependent world than any generation has before, and must adjust policies to respond. The financial crisis only reaffirms that reality - no country can escape its consequences. The size of the manual working class has shrunk dramatically. It is not about to grow back. To have any chance of a fourth term, Labour will have to appeal to constituencies far beyond its traditional class base. The economy has become, and will remain, post-industrial, based on provision of services rather than manufacture. Migration and cultural diversity are here to stay and must be managed politically.

Many of New Labour's core policies remain relevant. Investment in education, as Gordon Brown underlined last week, has to stay a high priority. Reform of the public services remains a priority, with more local autonomy, more power for users and more personalised provision still the key emphases. Labour markets have to remain flexible to adapt to changing patterns of work, including rising unemployment. Poverty and inequality still have to be tackled at source, since their causes are deeply embedded. Even in a recession, environmental issues retain their fundamental importance and should not be put on the back burner - a very real danger.

It is not only Labour that has had to jettison the conventional economic wisdom of the past two or three decades - governments of all political persuasions have been forced to do so. Had the Tories been in power, they would almost certainly be doing the same, rather than carping from the sidelines.

From prudence to profligacy - it is a big change, no doubt about it. Raising tax rates for high-earners seems to me a much smaller one, albeit charged with considerable symbolic significance. It suits the right to portray both as a return to the old left, but they are far from that. Balancing the budget was an important principle during the 10 years of economic success. It has been superseded by a more urgent demand. Asking those on high incomes to share more of the burden is surely right, although I would like it to have been done years back.

New Labour has made some major mistakes and Gordon Brown has to accept a share of responsibility for them. What began as a prawn-cocktail offensive to gain support in the City degenerated into a fawning dependence on it. Many warned about the high levels of personal debt and the fragile nature of the housing bubble. Those warnings went largely unheeded. Brown claimed credit for the good years; he has to shoulder some of the blame for the bad.

What matters now is where we go from here. The world won't be the same again - the period of deregulation, involving minimal governmental oversight of economic affairs, is over. We are into new territory. Greater regulation of financial markets is necessary - more or less everyone agrees on that. Industrial policy, so long in the shadow, has to be reinvented. I'm strongly in favour of coupling recovery from recession to large-scale investment in low-carbon technologies. Yet we can't go back to the cumbersome forms of state planning that have failed in the past. Many of the capacities that markets offer simply can't be matched by other agencies. If risk-taking is curbed too much, we shall all be losers. How to reconcile these various qualities? The solution to this question will be a New Labour one, if "New Labour" means, as for me it does, being prepared to think afresh and innovate.

• Lord Giddens, a Labour peer, is author of Beyond Left and Right and The Third Way: The Renewal of Social Democracy